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Vedder Thinking | Articles SEC Issues New Rules for Security-Based Swaps


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On December 18, 2019, the SEC adopted certain rule amendments to enhance the framework for regulating cross-border security-based swaps. Through this effort, the SEC established a broad security-based swap regulatory regime and triggered the compliance date for security-based swap entities to register with the SEC and the implementation period for other previously adopted rules under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Together, these rules establish a regime for regulating margin, capital, segregation, recordkeeping and reporting and business conduct for security-based swap activity.

The key effects of the rule amendments areas are as follows:

  • transactions that have been arranged, negotiated or executed by persons located in the United States will now serve as a trigger for U.S. regulation of security-based swap activity;
  • security-based swap dealers and major security-based swap participants (collectively known as SBS Entities) located outside the United States will be required to provide a certification and opinion of counsel regarding the ability of the SEC to access information and conduct on-site examinations;
  • certain statutory disqualification provisions will have cross-border applicability; and
  • registered SBS Entities will be required to maintain certain questionnaires or employment applications for non-U.S. associated persons.

The foregoing rule amendments were designed in consultation with the CFTC, as many market participants are active in markets regulated by both the SEC and the CFTC and may use instruments regulated by the SEC to hedge risks in products regulated by the CFTC (and vice versa).

In addition, the SEC adopted rules under the Dodd-Frank Act requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps. New Rules 15Fi-3, 15Fi-4 and 15Fi-5 under the Securities Exchange Act of 1934 establish requirements for registered SBS Entities to:

  • periodically reconcile outstanding security-based swaps with counterparties;
  • engage in certain portfolio compression exercises; and
  • enter into written trading relationship documents with each counterparty no later than the time a security-based swap transaction is executed.

The SEC also adopted amendments to Rule 3a71-6 under the Exchange Act to allow SBS Entities that are not U.S. persons to use substituted compliance (i.e., compliance with local rules) to satisfy the SEC’s requirements regarding portfolio reconciliation, compression and trading relationship documentation. Finally, the SEC amended recently adopted recordkeeping, reporting and notification rules to incorporate records relating to these new risk mitigation requirements.

The adopting releases for the new rules are available here and here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt